US Industrial Production Fell for 11th Month Running
$DIA, $SPY, $QQQ, $VXX
Industrial production declined for the 11th consecutive month in July, -0.5% from July 2015, the fact that it has lasted for nearly a year now is significant.
On a monthly basis, production is up from its low in March particularly in the past 2 months, though the rise in July is susceptible to revision next month, as June’s increase was revised significantly lower with this month’s release.
Since February, any sign that the economy does not appear to be getting worse has been met with relief as if the whole matter has concluded.
Every monthly gain, no matter if still in contraction Y-Y, is greeted enthusiastically as if that were the case.
But individual segments of the production data are cause for real worry.
Manufacturing of consumer goods remains seriously and conspicuously subdued and is weaker this year than in Y 2015.
A slowing pace of automobile production is partly responsible.
Motor vehicle assemblies which had declined sharply in May only to rebound in June, were back down again in July, keeping the level of auto production below its prior trend.
That is a troubling development given that the auto sector has been one of the bright spots in the goods economy.
It is also consistent with what we find in retail sales, as well as recent pronouncements from the industry itself about plateauing sales. Without the usual boost from the auto sector, industrial production overall should struggle to regain any momentum beyond the current seasonality.
The other major support for US industry had been Oil & Gas production.
The crash in Crude Oil prices has ended that trend. Crude Oil production in the mining sector is starting to become a significant drag on overall industrial activity in the US.
Y-Y production in Crude Oil is down 10% and there does not appear to be any rebound in the near future.
Instead the contraction in Crude Oil production seems to be gaining even as prices are back into the $40’s once again. That would appear to confirm that domestic production needs a much higher Oil price and likely for more than just a brief appearance.
If both the Automobile and Crude Oil sectors continue to drag that would mean an even greater threshold for US industry to resume even marginal growth.
The very weak recovery so far had been largely based on those 2 efforts, without them, the economy would need to find real alternatives.
Auto sales have drastically slowed and production of consumer goods overall has been down for years. So it is unlikely the consumer sector will be of any help.
That leaves either utilities or an imminent surge in capital expenditures. With profits, cash flow and earnings also contracting and restrained, that does not appear likely.
It looks as if the trajectory of US industry in the intermediate period ahead will be determined by marginal auto production. Should it continue to fall below trend, overall industrial production may continue to be flat to negative.
If motor vehicle production starts to fall off in more recessionary fashion, there is an increasing possibility that the same would occur in more than just the auto industry.
The Key will be the effect on inventory.
The Big Q: Will slowing the pace of production be enough to start to bring down the inventory on the wholesale level, not what is in dealer showrooms and on their lots?
What is left beyond is the true state of the U.S. economy especially since Y 2012, now laid bare, stripped of its 2 major artificial enhancements. Trouble ahead.
Thursday, the US major stock market indexes finished at: DJIA +23.76 at 18597.70, NAS Comp +11.49 at 5240.15, S&P 500+4.80 at 2187.02
Volume: Trade was light as just 737-M/shares exchanged on the NYSE
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